The future of automation

Part three

84% of respondents believe TCAs are the best option for monitoring best execution

Are TCAs the best option for monitoring best execution?

Best execution needs to be viewed as a process, where TCA provides objective and quantifiable data that helps demonstrate how cost-effective execution is being achieved despite challenges of liquidity fragmentation and price transparency. TCA is valuable as an input to assist when choosing a trading venue or algorithm; a tool to help traders improve their trading processes; and ex-post reporting to identify outliers for internal risk and compliance teams.

– Tracy Rucker-Wilson, Global Portfolio Risk Manager – Fixed Income, Vanguard

TCAs used to be very rudimentary, so when new technology came out there was a lot of hype around the integration of multiple affecting factors besides cost. However, as trading continues to become more complex, some feel that the tech surrounding TCAs still isn’t integrated enough.

– Lauren Harrison, Conference Director, Fixed Income Leaders

The pressure to become more efficient was reported to be the most likely catalyst for widespread adoption of automation

What will be the most significant catalyst for greater adoption rates of automation?

Cost pressures will be the short-term driver. Longer-term, trading management is looking for multi-asset solutions that scale. It is becoming increasingly hard to defend a process or technology solution that only addresses a single market. Management has seen the benefits of automation in equities, foreign exchange and treasuries, so you can expect a migration of best practices into other fixed income products.

– Alex Sedgwick, Market Structure and Electronic Trading Consultant, Fincisive Strategies

Traders are being asked to do more with less. Hence, it has become imperative to reduce the strain on traders so they can focus on more value-added/high-touch trades.

– Alvin Burgos, Independent Expert

Automation rates are predicted to double in the next five years

What are your current and targeted automation rates in fixed income?

Automation enables better execution in terms of reducing cost, minimizing execution time, and improving operational controls.

– Tracy Rucker-Wilson, Global Portfolio Risk Manager – Fixed Income, Vanguard

With the increase in mutual fund and ETF fund trades, this is expected. The dealer community is moving to algorithmic pricing for low-touch trades, and it is only reasonable that the investment community does the same. However, I would expect that from a volume perspective, this will not have a similar impact.

– Alvin Burgos, Independent Expert

Automation has the potential to streamline workflow across the board. We’ve really seen this take off within the credit space, and it’s steadily making its way into the derivatives space too. However, with some of the more illiquid areas like high yield or emerging markets, there are generally much lower rates of automation due to the fragmentation in these markets. Over the next five years, it will be interesting to see if this changes.

– Lauren Harrison, Conference Director, Fixed Income Leaders